China Looks Down Under

Author: Lee Hudson Teslik
April 14, 2008

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With China’s appetite for natural resources and foodstuffs ever growing, regional trading partners Australia and New Zealand are attracting fresh attention. New Zealand made news April 7 by becoming the first developed country to sign a free trade agreement with China (NZ Herald). The same week, Australia’s Prime Minister Kevin Rudd departed for his first tour of China, with rapidly expanding bilateral economic relations high on the agenda. Experts say burgeoning relations between China and its neighbors down under promise economic dividends, particularly for Australia’s mining industry and New Zealand’s farmers. They also raise political concerns, however, and threaten to bring a rise in protectionist sentiment that could undermine regional trade liberalization.

China’s new interest in Australia and New Zealand stems primarily from its need for commodities, a trend that has already brought gains to Latin America and Africa, as noted in a 2006 report from Deutsche Bank (PDF). The Economist writes that China’s hunger has been “manna from heaven” for Australia, the leading global exporter of iron ore, which is running mines at full tilt and still can’t meet heady Chinese demand. Not only has China been willing to buy up all the ore the Aussies can produce, its huge demand has spiked the price of the commodity—sending the price of fines, the most heavily traded form of iron ore, from $31.40 in 2003 to $132.20 in 2008. The prices of lump ore and iron pellets, two other commonly traded forms, have also jumped. Australian miners have reaped the benefits as the world’s leading steel manufacturers have rushed to gain access to Australia’s iron.

New Zealand, too, has enjoyed booming exports to China, its fastest-growing trading partner. With rising food prices proving a burden for Beijing, China has expanded agricultural imports from New Zealand. A background paper on the bilateral trade deal from New Zealand’s foreign affairs and trade ministry notes that China’s growing middle class should keep the Chinese import market for agriculture strong for years to come. It also cites potential gains for New Zealand’s manufacturing and service sectors. The Financial Times says China’s agreement with New Zealand may be a test case for a broader deal with Australia. To date, China has shied away from dropping barriers in sectors like agriculture and services, which are of the most interest to Australia.

The rapid expansion of trade ties has also brought political tensions, however. The Age, an Australian daily, notes new calls for Australian Prime Minister Rudd to increase political pressure on China over a slew of issues ahead of the 2008 Olympics. Rudd has attempted to walk a fine line—refusing to say he won’t attend the games’ opening ceremony on principle, as French President Nicolas Sarkozy and German Chancellor Angela Merkel have done, and saying he will make a decision based on whether his schedule permits him to attend.

Trade with China has also sparked protectionist concerns in both countries. New Zealand’s foreign affairs minister, for instance, has taken a strong line, opposing the country’s trade minister and asserting that the recently signed trade deal is “not worth the risk” (NZPA). Similar concerns are bubbling in Australia and seem likely to come into play as Beijing and Canberra discuss a possible trade accord of their own. Despite indications from China that it might be willing to offer Australia market access well beyond what it offers the United States and Europe, a leading trade consultant says in the Australian that a China-Australia deal may well wind up “stranded on a reef.”